Why Jared Kushner’s Bahrain Conference Won’t Do Much for the Palestinian Economy
The Trump Administration’s team for Israel and the Palestinian territories—Jared Kushner, President Trump’s son-in-law and senior adviser, David Friedman, the U.S. Ambassador to Israel, and Jason Greenblatt, Trump’s chief negotiator in the region—has invited Middle East stakeholders to attend a “workshop” titled “Peace to Prosperity” on June 25th and 26th, in Manama, the capital of Bahrain. Workshop discussions, according to a buoyant White House statement, will facilitate “an ambitious, achievable vision and framework for a prosperous future for the Palestinian people and the region,” including “rapid private-sector growth.” The agenda, an Administration spokesperson said, will focus on investments in infrastructure, industry, people, and governance; donors will pledge “grant money, low-interest loans and then also private capital.” Kushner, famously, has been leading the team in devising a comprehensive, and so-far secretive, peace plan. (He has insisted that the plan is imminent; the workshop is purportedly a first lifting of the veil.) The workshop, the spokesman said, will not deal with “political” aspects of the plan—borders, security, and so forth—but will roll out its economic foundation. Palestinians, Kushner said, “deserve a future with dignity and the opportunity to better their lives.”
Egypt, Saudi Arabia, Morocco, Jordan, and the Gulf emirates (including the Saudi foil Qatar) have accepted the invitation. Israel will send business leaders but no government officials. (Trump Administration officials said they wanted things this way, “to keep the event from being ‘political.’ ”) The European Union will be sending a “technical level official, and the European Bank for Reconstruction and Development confirmed it would have “someone” there, as will the International Monetary Fund. (The E.U. is currently the largest external funder of the Palestinian Authority, with an allocation of about one and a quarter billion dollars between 2017 and 2020.) The United Nations will be sending its deputy Middle East coordinator. The Palestinian Authority, for its part, has declined.
The senior Palestinian diplomat Saeb Erekat released a statement asserting that the Palestinians’ “full economic potential can only be achieved by ending the Israeli occupation, respecting international law and UN resolutions.” The P.A.’s position, he added, was supported by “all Palestinian political movements and factions.” A group representing the Palestinian private sector, which accounts for approximately eighty per cent of the Palestinians’ gross domestic product, followed with a statement of its own. “The Trump Administration,” it said, “has decided to postpone the release of its political vision for Mideast peace and is leading instead with its economic plan, ostensibly offering a carrot before the stick.”
The Kushner team is not happy about this rejection. “They have nothing to lose and much to gain if they do join us,” Greenblatt responded. On its face, his logic seems plausible, not a quality often attached to Trump Administration claims. Estimates of funding for the Palestinians to be raised at the workshop, largely from the oil states, have ranged as high as sixty-eight billion dollars over ten years. This kind of money may not help Palestinians achieve their “full” potential, but it ain’t hay. (The entire annual P.A. budget is normally less than two billion dollars.) Nor is it certain that the Kushner team intends merely to substitute economic inducements for political resolutions (ending “the Israeli occupation,” and so forth). Kushner told Jonathan Swan, of “Axios on HBO” that he supports Palestinian self-determination. “Economic progress can only be achieved,” he has said, “with a solid economic vision and if the core political issues are resolved.”
There are reasons to doubt the Kushner team’s sincerity. The “political issues” that the Administration has addressed so far include moving the U.S. Embassy in Israel to Jerusalem; cutting off nearly a quarter of a billion dollars in aid to the Palestinians, as punishment for the refusal to receive the Kushner team after the Embassy move; and shutting down the Palestine Liberation Organization’s Washington, D.C., office. Kushner’s team, Swan said, is composed of “three Orthodox Jews,” two of whom—Friedman and Greenblatt—have “funded settlements,” and Kushner did not dispute his characterization. A few days after that, Friedman told the Times that, in some instances, Israel “has the right to retain some, but unlikely all, of the West Bank.”
None of this proves that the workshop is a bad idea, however, or that the team is disingenuous in proposing it. “If there is no flour, there is no Torah,” the Jewish sages said, an aphorism that the team would surely embrace: material wealth is a precondition for dignity. Wouldn’t an infusion of cash into the West Bank’s (and Gaza’s) infrastructure lead to a relaxation of extreme political demands all around? Why not bank the wealth now and reap the dignity later? “It’s an attempt to give life to their aspirations by creating a viable economy,” Friedman said.
Actually, the orthodoxy that makes the Kushner workshop so one-sided, and vain, is not Jewish but Republican: the default idea that governments only get in the way of private sectors that would otherwise steam along on their own; that Palestinian businesses would do just fine if the P.A. were shrunk down, to use the conservative economic activist Grover Norquist’s formulation, to the point that it could be “drowned in the bathtub.” Erekat does not want Palestinian political claims eclipsed, but he is making an economic point. He raises the Israeli occupation not simply because it preëmpts Palestinian national sovereignty—recognized borders, and so forth—but because it preëmpts the economic institutions that would grow within those borders—commercial courts, tax-collection agencies, immigration agencies, startup incubators—that would make Palestinian entrepreneurship more feasible, especially in an age of technological advances, as Israeli entrepreneurs well know. The Palestinians’ economic problem isn’t a lack of money; it’s a lack of liberty. Liberty requires a sovereign government.
“Bank deposits are nearing thirteen billion,” Iyad Joudeh, a business consultant in Ramallah, told me. “But the banks lend to entrepreneurs a far smaller proportion of this capital than American banks do. That’s because investible business plans are few.” Palestinians have no horizon, no appetite, to start businesses under these conditions. According to the World Bank, the Palestinian economy saw no growth in 2018. Yadin Kaufmann, an Israeli venture capitalist who co-founded Sadara Ventures, a thirty-million-dollar fund targeting the Palestinian tech sector, has had to proceed slower than he had hoped. Universities in the Palestinian territories graduate more than a thousand computer engineers a year. But, Kaufmann told me, “The sector is new, and very few Palestinians have been exposed to successful tech companies abroad.” The task is to help those few “great teams” that succeed become a model for others. “There’s enough money around to get them started, but not enough follow-on capital and strategic partners to support the ones that manage to get off the ground.”
To make matters worse, occupation authorities advance the Israeli sector to the detriment of Palestinian companies that are succeeding. Most egregious, authorities permit Israeli telecom companies to put up cell-phone towers in settlements located in Area C—the sixty per cent of the West Bank where Israeli settlements are located and Israel has complete control—while denying Palestinian telecom companies comparable frequencies. Consequently, many customers in nearby Palestinian cities feel they have no choice but to turn to turn Israeli companies for services. Ammar Aker, the C.E.O. of Paltel, the Palestinian telecommunications giant, told me that his company had to cut two hundred and sixty jobs (out of nearly three thousand) in the past couple of years because of “Israeli telecom companies poaching a sixth of our market.” The P.A., he conceded, has to do more to build a modern state. “But the occupation government is incomparably worse. Just in my business, Israel stifles the expansion of our ground networks, obstructs the importation of equipment, and restricts our frequencies, so that only Israeli carriers can offer next-generation broadband. And let’s not speak of how my business guests are treated at Ben Gurion Airport,” the main airport serving Israel and the West Bank.
“The Israeli government says the occupation is for security reasons,” Sam Bahour, an entrepreneur and consultant in Ramallah, told me. “But there is much that could have been done long ago, no threat to Israel, that has nothing to do with Kushner’s gambit, and would have been far more important to spur development—allow integration with East Jerusalem and its tourism, or allow students and faculty to move back and forth to the West.” Today, Bahour says, the Israeli government makes it virtually impossible for Palestinian firms to recruit Palestinian and international talent from abroad. Investment in Area C is largely prohibited. Occupation authorities also interfere with Palestinian industries by claiming “dual use”: importation of a chemical that might be needed for coating aluminum window frames, say, that was disallowed because it could allegedly be used to make explosives. Bahour added that, “in our largest sector, stone and marble, Israel permits dozens of Israeli firms to operate freely and unlicensed in Palestinian territory.”
So the Kushner team’s notion, that one can roll out a plan for economic growth now and defer political questions to later, seriously distorts how businesses work—at least businesses more complex than owning buildings and charging rent. In developing regions like the Palestinian territories—or like Israel, in the eighties—niche opportunities in product development become visible as a consequence of direct foreign investment by regional and global corporations. But that presupposes a business environment that meets ordinary standards of transparency: one that protects property, allows for the registration of companies, enforces contracts, and does not demand kickbacks at every turn—in short, an accountable state apparatus. People starting businesses, moreover, must be able to travel to their supplier and customer sites. They must be able to hire from outside the company—or the country—and not worry about new hires not being allowed to take up residency. Businesses need to be able to make arrangements with suppliers outside the country, so uninterrupted transportation corridors are essential. They need ports from which to import and export goods—and without overpaying clearing agents. Under occupation, none of these conditions obtain.
The challenge for the Palestinians, in short, is not to pump large amounts of new capital into the economy. That may, in the short run, gin up consumer demand, but it will mainly inflate an already growing real-estate bubble—in Ramallah and other West Bank cities—or pad the balance sheets of domestic retail banks, which, a board member of a Palestinian bank told me, are driven by high market risks to seek safe-haven investments abroad. The challenge, rather, is to build intellectual capital, target investment in dozens, and eventually hundreds, of sustainable (read, networked) businesses. To launch them, Palestinians will need—much as the Israelis did, thirty years ago—cellular infrastructure, “strategic partners,” and the freedom to learn and fail.
Given this future, the fact that the Trump Administration has ceased supporting such international agencies as the United Nations Relief and Works Agency for Palestine Refugees (UNRWA) is particularly troubling. Palestinian primary and secondary schools are the region’s economic seedbed. UNRWA, whose annual budget is more than a billion dollars, runs seven hundred and fifteen schools, serving more than half a million children. The Trump Administration was, by precedent, expected to contribute thirty per cent of the UNRWA budget—more than three hundred and fifty million dollars. Last fall, it summarily eliminated its contribution. (The agency’s leaders scrambled to cover the amount with added funds from the E.U. and the Gulf states.)
Elizabeth Campbell, the director of the agency’s Washington, D.C., office, told me in Jerusalem, “The cuts have come with myths about UNRWA, that we’ve expanded the definition of ‘refugee,’ that we are bloated, that we could be replaced. In fact, we cut ninety-two million from our expenses, and employ mainly Palestinian teachers, whose pay is far from an international standard. We are completely transparent.” UNRWA, Campbell might have added, also runs almost a hundred and fifty health-care clinics, and provides food programs for more than a million people in Gaza. “Nobody wants more than us that UNRWA slowly dissolve, because that would mean we would no longer have to be urgently concerned for the population to which we provide services.”
Rather than starting with Bahrain, Kushner’s team might well have facilitated “an ambitious, achievable vision” by seeking to fast-track the Partnership Fund for Peace Act of 2019 (P.F.P.), a bill that was introduced this month in the House and Senate. The fund, which was devised by Yadin Kaufmann, would support joint economic ventures between a Palestinian company and an American or Israeli partner company. The P.F.P. would be funded by a congressional allocation of fifty million dollars annually for five years, is sponsored by a bipartisan group, including Senators Lindsey Graham, Republican of South Carolina, and Chris Coons, Democrat of Delaware, and has the support of both the conservative AIPAC and the liberal J-Street lobbying groups.
Kaufmann modelled the P.F.P. on the Israel-United States Binational Industrial Research and Development (BIRD) Foundation, which was established, in 1977, to jumpstart Israeli technology companies. Each BIRD project involved a partnership between an American company and an Israeli one, with up to fifty per cent of the initial capital supplied by BIRD, and at least fifty per cent by the partnership. The source of the funding was an endowment of more than a hundred million dollars provided equally by the two governments—an endowment to which successful companies returned their initial capital with a premium. (Since its inception, BIRD has funded nine hundred businesses, which have earned sales of more than ten billion dollars.) “This initiative doesn’t eliminate the need for a political solution,” Kaufmann told me, “but it could create conditions that will make reaching one more likely. In the immediate term, there are a few promising Palestinian startups, and their success is extremely important for the Palestinian economy and polity.”
The Kushner team is not wrong to focus on growth, or to believe that faster growth might help prevent new political violence. But growth means giving latitude to green shoots, not just dumping bags of fertilizer on them. It presumes the steady withdrawal of the ambient violence that is the occupation. “We harbor no bad will to any party willing to genuinely help economic development,” the statement from the private-sector group said. “We know very well what is the measure of Palestine’s potential. We also know that the way to unleash that potential requires that Israel unshackle Palestinians from the systematic restrictions that have been part and parcel of the half-century-old military occupation of Gaza and the West Bank including East Jerusalem.” The Kushner team would know that, too, if it asked the people it is purportedly trying to help.